Mortgages Are Disappearing But The Advertising Isn't

Even as lenders face bankruptcy and banks are closing down their mortgage divisions and cutting jobs, the advertising for subprime and non-conforming loans is still going strong. What’s the deal?

From the Washington Post:

Even though dozens of lenders have shut down their mortgage operations or laid off employees, many others are trying to generate interest among potential borrowers even if the companies ultimately cannot qualify them for loans.

“It’s important to point out that there are loan options available for borrowers with lower credit scores in today’s market,” Darren Beck, senior vice president of marketing for LendingTree.com, said in a written response to questions.

So is it wrong to market no-money-down, interest-only or other alternative mortgages to people with poor credit?

“There’s nothing necessarily wrong about lending money to people with bad credit,” said David Nahmias, U.S. attorney for the northern district of Georgia, who has worked on mortgage fraud cases. “Our concern is more the independent mortgage brokers who will try either to trick people into purchasing properties they really can’t afford, solicit those people to lie, let them use their identity or credit so they can perpetrate mortgage fraud.”

Yes, those are our exact concerns as well. People with bad credit deserve a second chance—to buy a house they can afford. That last part is important.
What Credit Crunch? [Washington Post]

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The predatory lending practices will persist no matter what happens with the real estate market. (In one form or another anyway) Right now it would stand to reason that these companies are trying their darndest to squeeze out as much money as they can while they still can.

Alot of the blame rests with those companies who are the conduit between Countrywide and the actual end customer, as they’ll tell the customer whatever they want to hear in order to make the sale and get their commission.

It would be my assumption that the whole lack of ‘jumbo’ loans being made available will cause the real estate market(s) to completely crash in areas where you can’t buy a house for less then $417k.

As a result, real estate prices will come down and the market will adjust itself accordingly. Thank god I got my home a few years ago before this all hit.

Heh, got a mortgage advertisement today disguised as a class-action lawsuit notification, telling me that, as a member of the class, (anyone who received mortgage advertising from the offending company from 2003 until now was in the class) I was entitled to apply for a “settlement loan” at the wholesale rate of 7.375%, plus a $1500.00 lender fee and all the other usual fees. In case you’re interested, the company is Finance America, and the whole thing looked really fishy to me!

@s35flyer: I would define predatory lending as the practice of taking advantage of people by offering them a loan that on the surface looks like they would be able to afford it, but in the end, they’re hit with way more fees, and fees that vary to boot. (ARM, Balloon payments, points, etc.) …Fees that no one made them aware of upon signing/closing.

Not everyone is a lawyer or has the time and attention span required to read over the fine print of the 50 some odd documents they slap down in front of you at closing.

What if you bought a car and were told that the price was 30k, but somewhere in the reams of paperwork you signed, you agreed to pay extra for each mile you drove said car? Clearly that would be your fault for not putting the contract under a microscope before you signed it, but it stands to reason that the person who sold you the car did not do so in an honest fashion if they neglected to give you that very important detail, which would have probably vastly altered your decision to purchase this imaginary car in the first place.

It’s not just independent mortgage brokers – I am repulsed by the fact that Bank of America is offering me this today when I log out of online banking:

“You can own a home for you and your family with as little as $500 down…Let the bank you already know and trust-Bank of America-show you that buying a home doesn’t necessarily require a large down payment or a high salary. We offer many affordable mortgage options with flexible qualifying requirements and no-down payment options for:

I’m in the process of getting a Community Based Mortgage Program from Bank of America. I’m doing it because I have great credit, and my mom got sucked into a sub-prime mortgage. I’ve been paying off everything every month.

My partner and I were trying to buy the condo below us. He’s self-employed and I’m in the process of rebuilding my credit, so we had to go the way of stated income for our mortgage under his name. During the process, when all this subprime craziness was going down, the mortgage broker changed lenders. Our proposed payment went from $1,000/month (inc. HOA fees, taxes, and insurance) to $1,250 month with all the extra stuff. It was just too much of an increase, so we had to walk away. We know we couldn’t make that kind of payment. What sucks is that there are people who plan out payment structures (us) and set a cap to what they can spend. We wouldn’t have gone through all of this if we knew the payments would be too high. Then it gets jacked up on us. Not the end of the world, mind you, but it illustrates that it really does affect normal people that live inside their means.

I have two mortgages, one through Countrywide and one through another company. The Countrywide advertisements are sickeningly misleading and constant.

We regularly get letters saying “Important information about your mortgage!”, or those secure letters, the kind that checks and official notices come on where you have to tear perforated strips off the side and peel them open, and all they ever contain are ads trying to get us to refinance or whatever.

Predatory lending isn’t just for people with bad credit. I remember that when I was applying for a loan in 2004, I was pre-approved for $650,000, even though I asked for $400,000. I must admit that I was really, really, really tempted to buy something more expensive, but ultimately I stayed with the $400,000 budget. I opted for a condo instead of a house (and yes, I live in California.) I initially did a 3-1 ARM, because I was scared about payments, being single and the only occupant, it being my first home, etc. In the long run, I was a little bit smart, and a little bit lucky. A little over year to the date of closing, I refinanced with a new appraisal. Since the property had gone up an imaginary $120,000 thanks to inflated home prices, I got a good interest rate deal for my 30-year fixed while keeping my payments at 25% of my gross monthly income.

My lender is Countrywide, and it turned out that they were the ones that gave me the best offer when I refinanced, much to my anti-junk-mail chagrin. I hate, hate, hate all the crap junk mail I get. Every month is seems that they’re re-packaging their envelopes with sleazier and sleazier ways to get you interested in whatever they’re offering. Boy, how I love my paper shredder!

@royco: ARMs aren’t “fees”. I can get outraged about truly deceptive lending practices, but if someone is buying a house and doesn’t know what the term ARM means, it means they made no attempt to learn anything before starting the process *and* that they didn’t bother to ask basic questions about their own loan. It’s not entirely an issue of people getting tripped up on evil buried on page 138 of their loan document…

An easy way to avoid this for us was to qualify for a lon based on my salary alone. I bought our house before we got married, and qualified for the loan based on me alone. My wife’s parents have always done this. They base expenses on one person’s salary so they don’t get pinched when adversity hapens.

Before you sign something, hire a damn lawyer to read that fine print and have them explain all of it to you. If you won’t hire a lawyer to go over legally binding documents that can ruin your financial life, you deserve what you get! The banks / lenders hire lawyers to write up their side of things; you have to do the same.